The EB5 Program, administered by the US Citizenship and Immigration Services (USCIS) was created for stimulating the US economy through job creation and capital investment by foreign investors. To apply for this visa, the investor must invest in a new commercial enterprise and fulfill job creation as well as capital investment requirements. The minimum qualifying investment in the US is $1 million. However, Targeted Employment Areas (High Unemployment, Rural Areas, or Special Economic Zones) require a minimum investment amount of $500,000. As an EB5 investor, you and your family members (including unmarried children under age 21) are granted conditional permanent residence for a two-year period. Near the end of those two years, a petition is filled to remove the temporary conditions, after which you can reside and work in the US permanently. The investor must demonstrate that the source of funds used for the investment are derived from lawful sources by providing five years of tax returns and other evidence relevant to the source of funds, such as pay stubs, dividend receipts, or any closing documents for the sale of real property.
What is Regional Center
A Regional Center is a USCIS approved entity in a designated geographical area. If an investor were to invest in a project that was not sponsored by a regional center, they would have to prove the creation of 10 direct full time jobs. Under the regional center model, and the major advantage of the regional center model, the indirect and induced jobs created by the investment project are also calculated and included in the total job creation figure. An economic report will show the ripple effect of the development project on the geographical economy and estimate new job creation with these figures.
Regional Center Projects
RC projects are much more flexible investments.
(i) Job creation is indirect, based upon expenditures and increased revenues resulting from the project, plus the economic job impacts derived from economic models like RIMS II and IMPLAN.
(ii) Structurally, there is great flexibility and common structures include the debt model, where the investor invests in an NCE, which in turn makes a secured loan to a JCE, which loan might be guaranteed by a third party. The EB-5 investment can be structured as senior secured debt, mezzanine debt or some form of equity capital.
FCA has significant experience with non-regional center projects. These projects are generally smaller capital raises and differ from RC projects in several important ways:
(i) Structurally, there can only be one entity, the NCE-JCE, although a wholly-owned subsidiary may also be used. This compares with the RC model, in which the investor invests in an New Commercial Enterprise (NCE) which then makes an investment or loan to a Job Creating Enterprise (JCE). There are no loans in the non-RC world, only equity investment, although the equity may be preferred equity.
(ii) Job creation is only through actual full-time (35 hours per week) direct employment by the NCE-JCE, which jobs will be proven by employment tax records (Forms I-9 and W-4).
(iii) All the jobs and all the money must be in the same entity.
Our recommendation & Why
offer an option for investors who are uncomfortable investing as passive investors with no control or direction of the project.
(i) Investor-Managed projects are by definition not securities because they are managing or co-managing their own investments.
(ii) As Managers or Co-Managers, investors may be liable for more than their investment, but are in charge of their own success or failure, and the EB-5 regulatory compliance of their project
(iii) Investor-Managed projects tend to be smaller ventures.
(iv) Investor-Managed projects may be either RC-sponsored or Direct Employment projects.
Small Cap Projects:
are investment opportunities for one or two investors.
(i) These could be passive or actively Investor-Managed projects; and can be RC or non-RC direct employment projects.
(ii) Examples can be operating businesses, e.g. franchise food restaurants or other franchise businesses; or small residential or commercial real estate projects.